Warning! Proposed Changes to Private Residence Relief

Tax changes ahead on house sales

HMRC is currently consulting on its proposals to extend the scope of capital gains tax to include non residents selling UK residential property. Contained within the consultation document are proposed changes to the operation of principal private residence relief (PPR), which would have wider implications for UK residents owning more than one home.

Currently, when you sell the home that you have always lived in, there is no capital gains tax to pay as PPR provides relief against charge. For individuals who own more than one residence, there is the opportunity to elect which property is to be the main residence for the purpose of the relief, and this can provide planning opportunities. It is only possible to have one principal private residence at any one time, and there can only be one residence between spouses. If you do not make an election, the question of which is your main residence will be decided on the basis of fact, and it may be necessary to provide sufficient evidence to HMRC to back up any claim.

HMRC proposes two alternatives to the current election regime:

  1.  The removal of the ability to make an election. Individuals would need to demonstrate to HMRC that the property was their main residence (in a similar way to the current process that applies where someone has not made an election)
  2. The introduction of a fixed rule that identifies an individuals’ main residence e.g. the residence where a person has been present the most over a given period of time.

Whatever the outcome of the consultation on non residents selling UK property, it appears likely that there will be changes to the operation of PPR relief. Without changes, it would be possible for non residents to nominate the UK property as their PPR, which would defeat the object of extending the scope of the capital gains tax charge in the first place.

If you have more than one residence, PPR can be a complex but very valuable relief. If you have not thought about your current position, or need to review it, now is the time to do so!

For more information contact our Tax Experts on 0845 177 5500 or use our on-line contact form for a free initial consultation.

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